In planning a project, such as in building a house according to a contract that includes as a provision that the house be built by a date certain, or in simply planning activities or setting goals in one or another context, such as in setting financial goals, it is advantageous to identify risk and, depending on the risk, to develop contingency plans or take preventive steps so as to reduce the overall risk of an adverse outcome. The term risk is used here to mean the probability of an adverse outcome. Associated with the adverse outcome is an effect that can often be equated to some amount of money, i.e. can be measured in for example dollars. The product of the risk and the effect (or amount at risk) is here called the expected adverse outcome.
In some contexts, such as in the context of a large construction project, accounting for risk in any meaningful way is a complex undertaking. Risk must be identified, evaluated as to likelihood (to the extent possible), and then quantified (i.e. the corresponding adverse outcome for each particular risk must be expressed in some yardstick, such as dollars). Then the cost of corrective or preventive actions must be compared with the expected adverse outcome. Further, in many situations, the ultimate adverse outcome occurs only if several different events occur, further complicating the problem of how to address risk. Finally, the assignment of a likelihood of an adverse outcome, which is crucial to a correct accounting for risk, is often difficult, and depends more on experience than logic.
Thus, what is needed is an automated system for identifying and managing risk, a system that makes feasible the identification and evaluation of the risk of adverse outcomes in complex situations, and that allows taking into account in a dynamical way experience useful in estimating the likelihood of occurrence of different adverse outcomes.